C.

Investment and Finance Activities

• Financial Planning – cash flow planning and capital budgeting serve as controls.

• Raise capital – signature approval of high-ranking officers and consent of board of directors.
Registrars and transfer agents (p. 364)

• Operate business (all other cycles) – all cycles interact with finance and investment cycle.

• Mergers and acquisitions – involve sources and uses of funds.

• Invest excess funds – earning a short-term return on excess cash.

Authorization of investments and borrowing

Many financing transactions are off the balance sheet. Companies can enter into obligations and
commitments that are not required to be recorded in the accounts. Examples include leases,
indorsement on discounted notes, commitments to sell at fixed prices and certain kinds of stock options.
They cause problem in financial reporting and disclosures.

All investments policies should be approved by the board of directors or its investment
committee. Auditors should expect to find a great deal of variation across companies as to the nature
and amount of transactions that must have specific high level approval.

CUSTODY

A registrar keeps the shareholder list and from time to time determines the shareholders
eligible to receive dividends and those entitled to vote on the annual meeting. Custody of the share
certificate book is important because the unissued certificates are like money or collateral. If improperly
removed, they can be sold to buyers who think they are genuinely issued or can be used as collateral
with unsuspecting lenders.

Custody of investments depends on the nature of the asset

Shares or bonds—negotiable certificates

Investments that don’t have certificates, custody may take the form of management responsibility (ex.
Joint ventures)

Intangibles—company managers
RECORDKEEPING

Accounting calculations often involve significant accounting estimates made by the

management

PERIODIC RECONCILIATION

Inspection and count of negotiable securities certificates. Similar to physical inventory, in that it
consists of an inspection of cetificates on hand, along with comparison to the info recorded in the
accounts